This article aims to investigate the extent of carbon emissions disclosures in Portuguese companies operating in environmentally sensitive industries, from 2008 to 2012. Additionally, the chapter aims to explore the factors that explain the extent of such disclosures. The research sample is based upon Portuguese companies that had been continuously integrating in the PNALE I and II, over the twelve-year period. A content analysis of their annual/sustainability reports was conducted to explore the carbon emissions-related disclosures. The study also uses a disclosure index to investigate the extent of disclosure and a panel data regression model was performed to determine the factors that influence carbon emissions reporting. The results show a relatively high level of disclosure and the influence of size, activity sector, concentration of capital and economic period on the level of disclosure presented.
TopIntroduction
Global climate change has become the epicentre of the concerns of global governments as they pose a threat to humanity. These changes can have natural and/or anthropogenic causes to which technological innovation, subject to constant change, has contributed, which obliges companies to join in order to face the competition that takes place in an increasingly globalized market.
In the sense of mitigating the environmental impacts caused by the emission of gaseous pollutants, the Kyoto Protocol of 1997 implied the commitment of several countries to reduce atmospheric emissions. Within the European Union (EU), Member States have committed to reduce their emissions by 8% over the period 2008-2010 compared to 1990 levels. In this context, Directive 2003/87/ EC, of 13 October, established a European Greenhouse Gas Emissions Trading Scheme (EU ETS).
This market allows entities that exceed established targets to buy contamination rights from entities that have achieved reductions above fixed limits. In this way, the emissions market starts to stimulate the economy, with more than one million licenses (about 23 million euros) being traded in 2006 (year after its entry into service). In the second period, the quantity of allowances allocated decreases and the price of the ton of carbon has increased. The price of licenses is very variable, being influenced by political, economic, climate, among others (Santos, 2013). With the evolution of the EU ETS for the third period (2013-2020) the allowances are no longer allocated free of charge (as they were in the first two phases: 2005-2007 and 2008-2012) and are now auctioned.
With regard to the accounting of CO2 emission allowances, there is no accounting regulation in this area at both European and international level1. The absence of a specific accounting standard, set by the International Accounting Standards Board (IASB), which regulates the accounting treatment of allowances has led to the adoption of different accounting treatments by the contracting entities. In this sense, some Member States (such as Portugal, Spain, Belgium, France and the United Kingdom) felt the need to develop specific regulations applicable in these countries for the accounting treatment of such licenses.
In Portugal, following the approval of the Accounting Standardization System (Sistema de Normalização Contabilística, SNC), Decree Law (DL) No. 158/2009, of 13 July, amended by DL 98/2105, published Accounting and Financial Reporting Standard (Norma Contabilística e de Relato Financeiro, NCRF) No. 26 - Environmental Matters, with has an appendix dedicated to the accounting of CO2 emission allowances.
In view of the above, this topic has been catching the interest of researchers who are looking to see if companies disclose information about GHG emissions and the impact of certain company characteristics on the disclosure level presented (Giorgios & Dimitrios, 2009); Prado Lorenzo et al., 2009; Luo et al., 2012; Luo et al., 2013; González-González & Zamora Ramírez, 2016; Kalu et al., 2016; Liesen et al., 2015; Hermawan et al., 2018; Faisal et al., 2018; Akbas & Canikli, 2018; Hapsoro & Ambarwati, 2018; Borhei et al., 2018; Hasih et al., 2019; Kiliç & Kuzey, 2019).
In this sense, this paper pretends to contribute to the greenhouse gas (GHG) disclosure literature by analysing the level of disclosure about Emission Allowances (EA) in Portuguese companies that have been covered by National Plan for the Allocation of Emission Licenses (Plano Nacional de Atribuição de Licenças de Emissão, PNALE) and to identify the determinants of disclosure level.
This research provides empirical evidence on the determinants of GHG emission licenses disclosure, which could be useful for organizations and regulatory bodies, especially in Portugal’s commitment to reduce emission of GHG. These findings may be useful in the definition of policies that seek to minimize greenhouse gas emissions.
After this introduction, the structure of this work is organized in three points. In the first point, an approach is taken with regard to the functioning of the carbon market and the accounting framework for CO2 emission allowances. The second point is dedicated to the literature review and the development of research hypothesis. Following is the research design, namely the presentation of the selected sample and the research methodology developed. Finally, the results are analyzed and discussed, and the solutions and recommendations, the clues for future research and the conclusion are presented.